The Political Impact of Inflation

Dr. Louis Perron
blog post louis

Inflation has not been a major problem (in Western countries) for such a long time that people forgot its political implications. And they are huge. Absent a major crisis, the state of the economy always plays a key role in any election. As political consultant James Carville famously said: “It’s the economy, stupid.” But there are important nuances. Let’s take unemployment, for example. If it is a main problem in a country, there are about, say 10% to 15% of the voters that are directly affected. Many more might worry to become unemployed, but still the number of people that are directly impacted is limited. In herein lies an important difference to inflation, which each and every voter feels directly. If the prices for gasoline, food, and utilities go up, it may not be existential for everybody, but everybody feels it. That is why inflation is politically very dangerous. Looking at current U.S. politics, I can’t help but feel that Democrats look awfully out of touch in this respect. Voters say in surveys that inflation is their main concern, and all the while Democrats in Washington D.C. are fighting with each other about how much more money to spend, and can’t even agree on it.